RICK WARTZMAN / CALIFORNIA & CO.

Governor's health plan could be short-lived

RICK WARTZMAN

January 26, 2007, Los Angeles Times

Editor's note: Today, the Business section introduces this new weekly column.

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As one might expect from somebody who has been in and around politics most of her life, Hillary Rodham Clinton launched her campaign by leavening the optimism with a bit of caution.

"The debate will be a vigorous one," she said. "We want people to become informed in order to rebut the kinds of attacks, the misinformation, the advertising campaigns that will be stirred up in the next months."

Although they might well apply, these words were not part of Clinton's announcement last week that she's running for president. They were uttered, instead, more than 13 years ago, as the then-first lady and principal White House healthcare advisor hit the road to sell her husband's proposal to revamp the country's medical-industrial complex.

In the end, of course, her remarks turned out to be dead-on. Relentless condemnation, a slew of half-truths and a multimillion-dollar ad blitz — much of it generated by the business community — killed off HillaryCare, as the critics branded it.

Now we have ArnoldCare, and it's hard not to be overwhelmed by a sense of deja vu.

I wish it weren't so. It's obvious to just about everyone, even those with gold-plated insurance policies, that we need to rein in medical costs. As for dealing with the uninsured — 6.5 million in California, 47 million and growing across the U.S. — I'd argue that coverage should be a basic right and would endorse a national single-payer system. But clearly, that isn't going to happen anytime soon. Politically, it's a nonstarter.

Yet so is the governor's plan. The reason is simple: Businesses big and small will knife it, just as they did in D.C.

Some are more hopeful, calling attention to the warm reception Gov. Arnold Schwarzenegger's plan has received from the Democratic side of the aisle. They cite positive feedback from Safeway Inc. Chief Executive Steve Burd, among other executives. And they say that corporations are more eager than ever to find a solution to the healthcare crisis, pointing to a recent alliance on the issue between the Service Employees International Union and the Business Roundtable, an association of leading CEOs.

But here's what many have forgotten: Business wasn't monolithic during the Clinton days either. A number of companies, especially Big Steel and the automakers, were on board. The Business Roundtable seemed so too — until it switched positions and left the White House scrambling.

I had a ringside seat for all the action in 1993 and '94, following it closely as a Washington-based journalist. And the central issue today is the same as it was back then: Giving everyone coverage is hugely expensive — and nobody wants to pay. As the late Louisiana Sen. Russell Long described the rap that can be heard whenever revenue needs to be raised: "Don't tax you. Don't tax me. Tax that feller behind the tree."

Schwarzenegger, for his part, isn't using the term "tax" at all, opting instead for "fee" or the more oblique "coverage dividend." It's not a trivial distinction; a tax would require a two-thirds vote of the Legislature (and thus Republican support), rather than a simple majority.

But no matter which label is stuck on, the upshot remains: Insuring everybody will entail reaching out and touching some of the most powerful and well-heeled interests in the capital.

Under the governor's blueprint, which seeks to bring in $12 billion a year from the public and private sectors, hospitals would be directed to relinquish 4% of their revenue. Doctors would cough up 2%. Meantime, all businesses with 10 or more workers would have to offer health insurance to their employees or hand over the equivalent of 4% of their payroll to the government to help furnish coverage — a percentage that many (including me) believe should be at least twice as high.

At this early stage, business groups are loath to look obstructionist. When I was up in Sacramento last week, one lobbyist after another made sure to genuflect toward the governor's office, praising Schwarzenegger for his bold vision. Everyone agreed with his broad goals. But once they got past the platitudes, they poked at his plan like a med student hovering over a cold cadaver.

For mom-and-pop enterprises, in particular, a mandate requiring that they offer insurance or otherwise pay into the system is anathema — ideologically as much as pragmatically.

"That would be very difficult … to move past," says Michael Shaw, assistant state director for the National Federation of Independent Business, which represents some 35,000 small firms in California. A recent court decision in Maryland, Shaw notes with some glee, also throws doubt on the legality of a mandate.

Even businesses already offering health insurance are trotting out pointed questions. These companies should be delighted by the idea of universal coverage, given that those who have insurance invariably wind up paying for those who don't. This "cost-shifting" increased premiums in California an estimated $1,186 per family last year. (Full disclosure: This calculation, embraced by the governor, comes courtesy of the New America Foundation, the think tank where I work. And, yes, for the record, New America does provide health insurance.)

But Allan Zaremberg, president of the California Chamber of Commerce, worries that if medical inflation isn't corralled — and the governor's plan is weak in this regard — there may be little choice but to try to tap businesses again and again to keep the program running.

"Even if the money is adequate today, will it be enough to fund the program five years from now?" he asks.

Insurers are also busy dissecting the Schwarzenegger proposal. Chris Ohman, president of the California Assn. of Health Plans, suggests that a provision to treat everyone, regardless of medical history, could cause the price of policies to soar for the 1.7 million state residents who buy insurance on the open market. It could also force insurers, faced with a less favorable set of economics, to pull out.

"We run the risk of having a perverse result," Ohman says.

I don't buy all of these doomsday scenarios. But I do trust what Shaw of the independent business federation says is the bottom line: "No one wants to be left holding the bill."

To be sure, the governor's plan is not all sticks. Doctors and hospitals, for instance, would supposedly come out ahead because of higher Medi-Cal reimbursements and fewer uninsured patients. The trouble is, such financial benefits tend to be a bit fuzzy and off in the future. The pain, by contrast, is guaranteed and immediate.

"There are some real positives," says Walter Zelman, a former California insurance official and industry executive who helped craft the Clinton healthcare initiative. "Yet everybody's initial reaction is, 'Where am I going to get hurt?' "

Despite this, perhaps there is a way to move forward. Better political minds than I might figure out how to target providers first, improving access to care and holding the lid on costs. Then coverage could be expanded — perhaps insuring all children to start, and moving on from there.

I hate to advocate an incremental approach to such a big problem. But to take on all of these lobbies at once — physicians, hospitals, insurers, small business and more — is to invite the same result that befell Clinton's noble effort: It's a plan that'll end up wearing a toe tag.

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Rick Wartzman is an Irvine senior fellow at the New America Foundation. He is reachable at rick.wartzman@latimes.com.